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Registration and

Incorporation of
company
Procedures of incorporation

• Online application of MyCOID 2016


First step – Reservation of name
• Sec 27(1) of the CA 2016- apply to the Registrar to confirm availability of
a proposed name.
• Sec 26(1) – name can be approved if it is not:
(a) undesirable or unacceptable
(b) Identical to an existing company, corporation or business
(c )Identical to a name that is being reserved under the CA 2016
(d) A name that the Minister has directed the registrar not to accept of
registration
• Once the proposed name is approved, it will be reserved for 30 days from
the date of lodgment of the application together with the prescribed fee.
Second step- Application, Fees& Notice of Registration
• Sec 14 (3) – requires a list of information/ particulars to be included in
the application form (known as “Super Form”.
• Sec 15 CA 2016 – if the Registrar is satisfied that the requirements as
to the application for incorporation has been complied with and upon
payment of the prescribed fee, the Registrar shall enter the particulars
of the company in the register, assign a registration number to the
company and issue a notice of registration.
Procedures to set up a company
via electronic filing system
MyCoID
• Please read user manual at
https://mycoid2016.ssm.com.my/document/MyCoID
2016_User_Manual.pdf
Effects of incorporation of a
company
Effects of incorporation of a
company pursuant to Sec 18
• Upon incorporation, there shall be a company by the
name and registration number as stated in the principal
register kept by the Register.
• Every person whose name is stated as a member in the
application for the incorporation and on the
incorporation of the company shall be entered as
members, together with such other person who may
become members of the company from time to time, are
a body corporate by the name stated in the notice of
registration.
• In the case of a company having share capital, every
person whose name is a stated in the application for
incorporation becomes the shareholder
• The details of the registered office of the company
as stated in the application for registration.
• The person named in the statement as a director or a
secretary, if any, shall be deemed to have been
appointed to that office.
Effects of incorporation of a company
pursuant to Sec 20

• Sec 20 – Co. is a body corporate and shall –


(a) have legal personality separate from that of its
members; and
(b) continue in existence until it is removed from the
register
Doctrine of Separate Legal Entity

• The company is said to have a separate legal entity


which means that the company can stand on its own
and have to settle its own debt and liabilities.
• The officers in the company cannot be made liable to
settle the company’s debt and liabilities.
• Who is the officer? Refer section 2 (1)
Section 2(1) - Officer
“Officer”, in relation to a corporation, includes –
a) Any director, secretary or employee of the corporation;
b) A receiver and manager of any part of the undertaking of the
corporation appointed under a power contained in any instrument; and
c) Any liquidator of a company appointed in a voluntary winding up,
But does not include –
i. Any receiver who is not also a manager;
ii. Any receiver and manager appointed by the Court; or
iii. Any liquidator appointed by the Court or the creditor.
• The doctrine of separate legal entity is derived from
the case of Salomon v Salomon & Co (1897) where
the court has established a principle that a company
and its members are separate persons.
• This principle is also known as the veil of
incorporation.
• Facts

• Salomon (S) owned a shoe repair business; he decided to turn this


business into a limited company. He created a company called
Salomon & Co Ltd (S&C); and given the requirements put forth in
the Companies Act 1862 which require the presence of at least
seven shareholders. He made himself, his wife and his five
children, all owning one share each.
• S&C Ltd then bought the business from Salomon for £ 39,000.
S&C Ltd paid for the business:

• £10,000 owed, paid by a debenture (a loan from S to S&C


Ltd)
• £20,000 in shares (priced at £1)
• some cash
• Soon after the business had been incorporated, the company
faced severe financial difficulties. In the end, however, the
business failed.
• Given that, at the time, the company was indebted to
unsecured creditors; an action against the appellant
was brought by the company’s liquidator.
• The House of Lords ruled that:
• S was not personally liable for the debts owed by S&C Ltd
• S was entitled to the assets of S&C Ltd, since he was a
secured creditor (through the debenture)
Lee v Lee’s Air Farming Ltd

• Lee formed the company named Lee’s Air Farming Ltd. He owned
all the shares except one. He was the company’s sole governing
director. He was also employed by the company as its chief and only
pilot. Lee was killed while flying for the company.
• His wife made a claim for workmen’s compensation under the New
Zealand workmen’s compensation legislation. Her entitlement to
such compensation depended on whether or not Lee was a worker.
• The New Zealand Court of Appeal refused to hold that Lee was a
worker, holding that a man could not in effect, employ himself.
Held
• The Privy Council allowed Mrs Lee’s claim. Lee may have been the
controller of the company in fact but in law, they were distinct
persons.
• He could therefore enter into a contract with the company, and could
be considered to be an employee. The widow was therefore entitled to
an award in respect of workmen’s compensation.
• Read : The case of Abdul Aziz b Atan & ors v Ladang Rengo Malay
Estate Sdn Bhd [1985] 2 MLJ 165
• Yap Sing Hock v PP [1992] 2 MLJ 714
• Abdul Aziz Bin Atan & 87 ORS vs Ladang Rengo Malay Estate SDN BHD (1985) 2 MLJ
165 is another case where all the shareholders of the company sold and transferred their
entire share holdings to a certain buyer. Therefore, the court had to determine whether a
change of employer took place.

• Held: An incorporated company is a legal person separate and distinct from its shareholders.
The company, from the date of incorporation, has perpetual succession and did not change
its identity or personality even though the entire shareholding of the company changed
hands.

• Yap Sing Hock & Anor v Public Prosecutor (1992) Directors of a company were prosecuted
under Section 67(3) of Companies Act 1965 in relation to breach of the financial assistance
provision of that legislation and criminal breach of trust in relation to two sums of money.
The two accused were directors of the company and one of the accused was the beneficial
owner of all shares in the company. The accused was convicted and appealed on the grounds
that inter alia a person who is the sole beneficial shareholder could not be liable for breach
of trust.
Application of the Principles of Separate Entity

• From this principle of separate legal personality, it follows that:


• The debts of a company are the responsibility of the
company and not its shareholders/members;
• A company can own assets and the shareholders have no
share (proprietary interest) in those assets.
• A company can enter into a contract with a shareholder;
• A company must sue in its own name, and not in the names
of its members, for any wrong committed against it.
Effects of incorporation of a
company pursuant to Sec 21

Sec 21 (1) – Co. shall be capable of exercising all the


functions of a body corp. and have the full capacity to
carry out or undertake any business or activity including –
(a) To sue and be sued
(b) To acquire, own hold, develop or dispose of any
property
(c) to do act which it may do or to enter into transactions
Ability to sue and be sued

• Section 21 (1) (a) enables the company to sue and be


sued on its own name.
• Members of the company cannot be sued and may
not maintain an action on behalf of the company.
Foss v Harbottle (1843) 2 Hare 461

• 2 shareholders in the Victoria Park Company brought an


action against the company’s directors and some other
persons. They alleged that the property of the company
had been misapplied or improperly used.
• It was held that the injury complained of was an injury
to the company. In law the company and its members
were not the same. Therefore, the members could not
maintain such suit. It was for the company to sue.
Capacity to acquire, own, hold,
develop or dispose of any property
• A company may hold property in its own right, either
movable or immovable. All company assets belong to
the company.
• The company’s members do not have ownership
over any of the company’s assets, even if they hold
the majority of the company’s shares.
• Shareholders also do not have any interest in a
company’s assets. As a result, they cannot insure any
of the company’s assets in their own name.
Macaura v. Northern Assurance
Co (1925) AC 619
• Mr Macaura was the owner of the Killymoon estate in
County Tyrone. In December 1919 he agreed to sell to the
Irish Canadian Saw Mills Ltd, all the timber, both felled
and standing, on the estate in return for the entire issued
share capital of the company, to be held by himself and
his nominees. He also granted the company a license to
enter the estate, fell the remaining trees and use the
sawmill. By August 1921, the company had cut down the
remaining trees and passed the timber through the mill.
• The timber which represented almost the entire
assets of the company, was then stored on the estate.
On 6 February 1922 a policy insuring the timber was
taken out in the name of Mr Macaura. On 22
February a fire destroyed the timber on the estate. Mr
Macaura then sought to claim under the policy he
had taken out. The insurance company contended
that he had no insurable interest in the timber as the
timber belonged to the company and not to Mr
Macaura.
To do any act which it may do or to
enter into transactions
• Section 21(1) (c) provides that a company shall have
the full capacity to carry on or undertake any
business or activity including to do any act and to
enter into transactions.
• This particular section gives an unlimited capacity to
a company just as an individual.
Lifting the Veil of Incorporation
• There are two types of exceptions where the
veil can be lifted:
• i) statutory veil lifting (statutes)
• ii) judicial veil lifting (Cases)
Lifting the Veil of Incorporation
• Corporate veil: A legal concept that separates the
personality of a corporation from the personalities of
its shareholders
• Lifting of the corporate veil means disregarding the
corporate personality and looking behind the real
person who are in the control of the company.
Lifting the Veil of Incorporation
(under statutes)
• Section 539 (3) and 540 (2) of the CA 2016 – when
the debt contracted at the time the company has no
liability of repayment
• Section 539 (3) – if the officer at the time of the debts are
contracted he had no reasonable or probable expectation
that the company would be able to pay the debts, he shall,
on conviction be punished under the CA 2016
• Section 540 (2) - Where a person has been convicted
of an offence under subsection 539(3) in relation to
the contracting of such a debt as is referred to in that
section, the Court on the application of the
liquidator or any creditor or contributory of the
company may, if the Court thinks proper so to do,
declare that the person shall be personally
responsible without any limitation of liability for the
payment of the whole or any part of that debt.
• Section 540 (1) of the CA 2016- when involving in
fraudulent trading
• It provides that if in the course of the winding up of a
company or in any proceedings against a company it appears
that any business of the company has been carried on with
intent to defraud the creditors of the company or creditors of
any other person or for any fraudulent purpose, the Court on
the application of the liquidator or any creditor or
contributory of the company, may, if the Court thinks proper
so to do, declare that any person who was knowingly a party
to the carrying on of the business in that manner shall be
personally responsible, without any limitation of liability, for
all or any of the debts or other liabilities of the company as
the Court directs.
• Section 131 of the CA 2016 – when dividends are paid
out of capital
• The general principle under section 131 (1) of the CA 2016 is
that no dividend may be paid to the shareholders unless out
of profits of the company available if the company is solvent
• Section 13 (2) of the CA 2016 provides that if an officer or
any other person or individual who contravene this section
commits an offence and shall, on conviction, be liable to
imprisonment for a term not exceeding five years or to a fine
not exceeding three million ringgit or both.
• Section 186 of the CA 2016 –
• Pursuant to section 186, if a company issues a prospectus,
the directors may be imposed joint and several liabilities to
refund money to investors if the minimum subscription is
not received within four months of the issuance of the
prospectus.
• Section 253 and Fifth Schedule (Directors’ Report)
of the CA 2016
• Section 253 and Fifth Schedule requires the directors of a
holding to produce groups account in which the assets,
liabilities, profits and losses of a group as a whole are
reflected.
• This shown that CA 2016 does not regard each company in
the group as a separate legal entity but recognises the
reality that a group of related companies function as a
single commercial entity.
• Section 123 of the CA 2016
• Section 123 provides that where the company contravened
the prohibition against providing financial assistance for
the purchase of its own shares, its officers and not the
company shall be guilty of an offence against the Act.
• Section 140 (1) of the Income Tax Act 2016
• Director General of Inland Revenue is allowed to ignore
certain transactions which have the direct or indirect effect
avoiding and evading any liability to tax.
• Section 46 of the Employees Provident Fund Act
1991
• The EPF can take actions against the persons who were
the directors when the offence was committed as well as
against the current directors when the action was taken.
• Section 108A of the Employees Social Securities Act
1969
• Section 108 provides that the directors of the company at
the time action is taken and the directors of the company
at the time of non payment of the premium are jointly and
severally liable to the company for the unpaid amount.
Judicial Veil Lifting

• i) Perpetration of Fraud
• The corporate veil may be lifted if the company is
used as a means to perpetrate a fraud.
• Aspatra Sdn Bhd & 21 Ors v Bank Bumiputra
Malaysia Bhd & Anor [1988]
• Aspatra Pvt. Limited. v. Bank Bumiputra Malaysia Bhd
(1988) 1 MLJ (Supreme Court of Malaysia)

Bank Bumiputra Malaysia Bhd (BBMB) and its subsidiary,


Bumiputra Malaysia Finance Ltd.. (BMF) claimed Lorrain to
obtain secret profits earned during his employment as a director
and chairman of BBMP BMF.
The company also claimed that the court should not consider
the assets obtained by Lorrain from his secret profits as
Lorrain’s personal assets. Thus, the court lifted the veil of
incorporation to ascertain the actual ownership of assets.
• ii) Evasion of Legal Obligation
• The court will lift the corporate veil to prevent a
person from evading his legal obligations under a
legally binding contract.
• Gilford Motor Co Ltd v Horne (1933)
• Gilford Motors v Horne [1933]
Horne was at one time the Managing Director of Gilford
Motors. One of the terms of his employment contract
which is the non-compete clause stated that if he leaves
the Company, he will not solicit the customers of the
Company. Later, Mr. Horne left the Company and setup
his own Company and through his new company, he had
business dealings with the previous Company’s clients. So,
his previous employer, Gilford Motors, sued Mr. Horne.
• Horne’s claimed that it was not him who doing the business
but the Company itself did the business as according to the
law they were two different entities.
• However the Court lifted the veil of incorporation. In this
instance, Mr. Hornes was just trying to hide behind a
Corporate veil to evade contractual obligations by using the
company to do the act which he is otherwise prevented from
doing by contract and steal business from his former
employer.
Jones v. Lipman
• Lipman agreed to sell properties to Jones. He later
changed his mind and don’t want sell to Jones. He
was prepared to pay damages. Lipman formed a
company and sold his property to the company. Jones
made an order of specific performance to perform the
contract.
• Court held: the specific performance was allowed by the
court as the act of Lipman to sell the properties was to
evade legal obligation. Therefore, the court should treat
the company and Lipman as one and lift the veil.
• However, if the party who bought the property was an
innocent or a bona fide purchaser he will be protected
under the law and do not have to return back the
property bought by him or her. The court will not order
specific performance if the property has been sold to an
innocent 3rd party who is a bona fide purchaser for a
value.
• iii) Enemy in Times of War
• In time of war, a company is not permitted to trade
with ‘enemy aliens’. The court may go behind the veil
of incorporation in order to determine whether a
company is to be characterised as an ‘enemy’ in time of
war.
• Daimler Co.Ltd V. Continental Tyre And Rubber
Co.Ltd
• This case was decided during the time when England
was at war with Germany.
• Continental sued Daimler for money due in respect
of goods supplied. Daimler claimed that the
Company was actually owned by German Nationals
and paying them was illegal under the Trading with
the Enemy Act.
• The Court lifted the Corporate veil to discover if
this was so, and found as a fact that it was the
Germans who were operating the business.
Defendant was therefore successful in its defence.
• iv) When group of companies are in reality
a single entity
A holding (or parent) company and any of
subsidiary companies are two separate legal
entities, but there are instances where these
two are not really treated as separate.
• Hotel Jaya Puri Bhd v National Union of Hotel, Bar &
Restaurant Workers
• The Jaya Puri Chinese Garden Restaurant was closed down and the
workers’ contracts were terminated. This restaurant is a subsidiary
company to Hotel Jaya Puri Bhd. The court found, on the facts,
that the hotel was in fact the employer of the workers since the
hotel and the restaurant were sharing the same management unit
and also same managing director. Thus, the court lifted the veil of
separate legal entity and treated the hotel and the restaurant as one
legal entity. Thus, the court ordered the hotel to pay compensation.
• V. when the company is employed as an
agent or alter ego of its controller.

• Smith, Stone & Knight Ltd v Birmingham


Corporation
• A subsidiary of the plaintiff company took over a waste
business carried out by the plaintiff. The subsidiary was
beneficially owned by the plaintiff company, and was
treated in day to day running as a department of the
plaintiff ’s business.
• All of the profits from subsidiary went to the plaintiff. The
lands owned by the plaintiff were compulsorily acquired by
the Birmingham Corporation. The question was whether
the plaintiff could claim compensation for disturbance to
the business carried on at the acquired premises.
• Held : The subsidiary was carrying on the business as agent
to the plaintiff. Thus, the plaintiff was entitled to
compensation for disturbance to the subsidiary’s business.
An implied agency existed between the parent and
subsidiary company.

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